Royal Bank of Scotland (RBS) is close to sealing a £200m deal to sell its retail and commercial banking operations in India, China and Malaysia to Standard Chartered, its British-based rival that specialises in emerging markets.

The bank sold its businesses in Taiwan, Hong Kong, Singapore and Indonesia to Australia and New Zealand Banking Group last month for £325m.

"Standard Chartered is currently the frontrunner in this auction," said a well-placed City source, adding that HSBC was "still hovering in the background".

The imminent sale of the last of RBS's Asian assets reignited talk in London last week that the deal could strengthen the position of those in the RBS boardroom who argue that the bank should look to a possible rights issue to reduce its dependence on the state.

RBS shares closed at 56p on Friday, leaving the government sitting on a £1.5bn paper profit from the 70% holding that it acquired when it threw the bank a £20bn lifeline last October.

But the stake will increase to 82% once RBS concludes negotiations with the Treasury to insure toxic assets worth £317bn under the government's asset protection scheme. But if RBS opted to insure a lower sum and raise fresh capital from its institutional shareholders, the state's equity holding would be reduced and the taxpayer would save money.

Last week, it emerged that Lloyds Banking Group, where the government speaks for 43%, is canvassing its shareholders about reducing its exposure to the APS and has outlined a number of proposals to the Treasury and the Financial Services Authority. In addition, Lloyds is weighing the possibility of launching a £10bn rights issue.

Until recently, however, it was thought that RBS's loan book was so vulnerable to economic uncertainty that it would be unable to cut its reliance on the state. But asthe economy improves, brokers even believe RBS could "at a pinch" opt for less government support.